Please Explain!

This article is published in The Malta Independent on Sunday 04.12.2011

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Immediately Joseph Muscat made an explicit promise that Labour would reduce utility rates if elected, two things became instantly obvious.   He was going to be bombarded from all sides to explain how this was going to be financed in the context of a tight fiscal position and that he would not be in a position to provide such explanations. We do not even know what the financial situation of Enemalta Corporation  is today let alone what it would be in spring / summer of 2013.      Enemalta has not published its annual report since 2008 and this is a gross act of reckless corporate governance disorder which is totally unacceptable outside banana republics.

 There is no living creature who can forecast with any degree of reliability what would be the cost of energy procurement in 18 months’ time when Labour may gain a mandate to form a government for the next legislature.   Nor can anyone have any advance knowledge of what sort of commitments Labour would find for energy procurement i.e. whether or not  it would inherit hedges covering future energy prices and the foreign exchange value of the US dollar.

Enemalta Power Station

These things make me foam from the mouth.  In front of me I have a bill issued by the Registry of Companies (MFSA) on a small property company levying a fine of Euro 786  for delay in filing the Accounts of 2009 and 2008.    You cannot argue with such fines.   You pay it or pay the consequences even through totally innocent companies enjoying common directors with the culprit company.   

The government that boasts of helping small businesses levies atrocious fines bordering on extortion for minor administrative misdemeanours but then sets distasteful examples through gross misdemeanours in a very major public corporation with total nonchalance and impunity.

So it should be clear to all objective observers that Labour’s commitment to reduce utility bills is a policy decision not a commercial business plan.    Like any government Labour would have its priorities for allocation of resources.  It seems that Labour has come to the conclusion that economic growth is being hampered by the sharp increases in utility bills experienced during this legislature and as economic growth is the only thing that in the end can deliver the bacon, Labour has taken a conscious policy decision to allocate resources in such a way as to remove the barrier to economic growth presented by high utility bills.

Now one can agree or disagree with such a policy but one cannot expect such a policy to be like a commercial business plan showing that on its own  it would have no direct negative impact on the fiscal position.

When we come nearer to the elections and when through the passage of time there will hopefully be reduced uncertainty on the state of play that an elected government would inherit, than I would expect that both major parties append a financial schedule to their electoral manifesto explaining how the whole manifesto measures, rather than just a single measure, would be financed.    We would really be setting new levels in political governance standards!!

There are other things however which require an explanation here and now from the government regarding the present financial situation of Enemalta Corporation, which could have a very heavy bearing on the fiscal position of general government.   And as it has become fashionable to make questions in bundles of 10 here is  a pack of ‘here and now’ 10 questions which require an immediate answer and explanation from the current administration that has still 18 months of executive term ahead of it.  So here we go:

1.       Why has Enemalta failed to publish its annual report and audited financial statements for both 2009 and 2010?

2.       How much is the current outstanding borrowing of Enemalta?

3.       Of this borrowing how much is covered by  government guarantees,  letters of comfort or some other similar arrangement which commits the government to stand behind the Corporation to ensure it meets its obligations.

4.       What other borrowings are scheduled for Enemalta to finance its capital expenditure and how will this be financed?  Will there be more guarantee commitments from the Government?

5.       Has government given any commitment to the EU and or to lenders that it will raise utility rates and/or fuel prices to render Enemalta commercially viable at the same time that it has promised no further increases in utility rates for 2012 to the domestic audience?

6.       From where will Enemalta meet its obligations to lenders if it has been a loss making operation and has to finance huge capex?  

7.       If Enemalta has no prospects to repay its loans from its operating cash flow is it not clear that sooner or later the contingent liabilities of government through guarantees or letters of comfort will have to be converted into hard cash outlays to be financed through the Consolidated Fund as has been the sorry experience of the Shipyards?

8.       What hedging policies  government and / or Enemalta are planning for 2012 which will be inherited by a new administration in 2013?

9.       If oil prices were to increase by 25%; 50%; or 100% from their current spot rates will government keep its pledge not to increase rates in 2012 and if so how will the losses be financed?

10.   Is Enemalta bankrupt?  This question ties up to the first one as the last published financial statements of Enemalta for 2008 show capital and reserves of just €69 million down from €173 million in 2007.   May be the delay in publishing the 2009 and 2010 Financial Statements  has much to do with the fact that auditors cannot sign that Enemalta is a going concern,  as it is, at least technically, bankrupt.

I am not holding my breath awaiting official answers.   But anyone who has ideas or answers to these questions can find debating space in my newly launched blog which is tightly moderated for true logical debate rather than mere political shouting games.